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Audits, certifications enhance operations, customer base: Exporters

Quality and social certifications and audits are expected to gain importance post-2004, with these expected to become the first criteria for buyers when choosing suppliers. Sudha Swaminathan and Sapna Dogra find out what the Indian textile and clothing industry feels about such audits and certifications.

International buyers are increasingly demanding that suppliers’ factories, globally, follow the laws of their land, operate in a socially and environmentally responsible manner. While a section of the industry has dubbed these requirements as non-tariff barriers, textile and clothing exporters realise that there is no escape from complying with social and environmental norms, if they want to operate in the global market.

Speaking to Express Textile, Mr Adil Raza, country manager, J C Penny, said, “What is wrong if international buyers want that factories adopt and meet certain social and ecological standards, which are nothing more than the laws already existing in the country. Yes, there could be certain problems with the labour laws in India, which definitely need to be tackled by the government, but till that happens the industry has to operate within these laws.”

And it is expected that the number of certifications and audits in the industry will double post-2004. Says Mr Namit Mutreja of SGS, “Certifications are voluntary, but the code of conduct compliance audit is buyer-driven. Over the past couple of years these audits have seen a sharp increase by about 30-50 per cent in case of garmenters. The cost of audit varies. Post-MFA, the audits will double because it will become the criteria by buyers for the suppliers.”

Social compliance audits are mandatory for exporting to the US and Europe. According to Dr M V S Rao, country head, MTL-ACTS (Bureau Veritas Consumer Products Services), “The Factories Act 1948 has all the requisites of social compliance certification and it holds good even today. The insincerity and laxity on the part of factory inspectors have made factory owners flout the laws. Which is why the foreign buyers insist on having external audits and certification for social compliance. SA 8000 is the most difficult standard as it goes beyond the Factories Act 1948.”

He further states, “The number of factory quality audits is very low in comparison with the social compliance audits. Moreover, it is the prerogative of the buyer whether he wants to go for factory audit or not. And only a few of them want the certifying or auditing company to do it for them because they have their own means for that. Factory quality audits have still not picked up because most clients don’t think it is important.”

Dr Rao believes that since the number of buyers has increased over the last couple of years, there is a slight increase in audits. “But also true is the fact that many new exporters have also come up who are exporting to the Middle East, South Africa and other developing and underdeveloped countries where you don’t need any kind of social compliance. Therefore, exporters go for these audits and certifications reluctantly, while on the contrary they should be doing it even for domestic production.”

However, he feels that post-2005, the growth in audits won’t be phenomenal, “because small factories will be phased out and only the top ones will be there, so the certification audits will come down but surveillance will remain.”

This buyer-driven demand for audits and certifications, while a bit of a burden on some, has improved operations in the factories. According to Mr M Senthil Kumar, general manager, Primex, the certifications have contributed in mobilising buyers. “We were handling 15 buyers prior to certification and now we are handling 35 buyers. The contribution of certifications towards getting new buyers would be 20 per cent. The business strength has improved due to certification. The certification gives global recognition and is also a very good marketing tool. We see 25 per cent reduction in rework and rejections. The certification has also helped in creating awareness about quality at all levels.”

Concurs Dr S Appuswamy, Shakthi Exports, “The adoption of ISO standards has helped in organising the business. The documentation procedures enable us to understand our position against our competitors. As far as business is concerned, I would say there is no direct benefit. Buyers select a supplier, based on the quality and price and not based on certificates.”

However, certifications are an important criteria for selecting suppliers. According to Mr B N Sandeep, ISO consultant, “The ISO certifications would give an edge to exporters post-2005. Though all the buyers are not aware of the importance of certifications, exporters can prove that a system is in place. A company may not be certified, but can still follow ISO standards to maintain a system and structure in the business. If ISO is implemented with a clear understanding of what is needed, benefits will accrue automatically.” This is exactly what some exporters like First Textiles are doing. Says Mr Jerry John, CEO, First Textiles, “As of now, I do not have any certifications in place, though I know I may have to do so in the years to come. While at present, I’m not going in for any certification, I’m certainly operating my facilities in a manner a certified unit would run.”

While certifications are important, it is social compliance that is an absolute essential, if exporters want to retain and increase their customer base. Says Mr Sandeep, “Social compliance is taken by the exporters out of compulsion rather than choice. Invariably, every buyer in some way or the other looks for social compliance. They may either put pressure on exporters to go for SA 8000 or give their codes of conduct to be followed by exporters. As exporters are not geared to comply with the laws of the land, there is pressure from the buyers to follow these codes of conduct. Unlike ISO certifications, which give direct benefits, SA 8000 may not give direct benefit, but it also helps in retaining the customer,” he avers.

According to Mr Venkatesan, chief executive, Dee Cee Exports, which has ISO and SA 8000 certifications, “Certifications like ISO have helped in maintaining a system and streamline the operation. With regard to SA 8000, it was taken more due to the pressure from the buyers.”

With audits and certifications expected to become ever more important in the years to come, does the country have adequate resources to meet this specialised demand?

According to Mr Sandeep, “The Indian exporters have to use the services of the international agencies, as there are no good Indian service providers. There are localised certification bodies, but they have no resources to spread across India. Most of the leading service providers like SGS or TUV have multiple accreditation. For instance, SGS always goes through UKAS (United Kingdom Accreditation Service), the accreditation body of United Kingdom. If an exporter asks for certification through the accreditation board of say Germany, the service providers are equipped to do so. Service providers like TUV and DNV are also equipped to provide certificates through Quality Council of India, the accreditation board of India.”

And what about acceptance in the global markets? States Dr Rao, “Since all Indian auditing firms are multinationals, their certifications and audits are easily accepted globally. Auditors are either appointed or nominated by buyers. There is no fixed cost for certification/audit because it varies depending on factory size and manday-rate. Also, the client pays for the audits.”

However, the industry feels that the number of audits per year should be restricted. Echoing the views of exporters, Dr Rao says, “Personally I feel that the number of audits should come down because audits take their toll on factories. They are elaborate processes and distressing for the factories. Now, post-MFA the number of clients will increase and each client will want its own certification that will be bad for factories. However, if there are common standards followed and adopted universally then factories can be spared the trauma of frequent auditing. Ideally a factory should undergo one audit per year.”